Friday, February 2, 2018

All About Bonds

The stock market can't deal with yields this high. Not at these nosebleed valuations. In 2013, when the 10 year was trading at 3%, the S&P was trading at 1800. At 2800, a 10 year trading at 2.85% is not going to be taken well. The underlying assumption of a low discount rate because of low Treasury yields is being blown up. If you have to discount cash flows at higher yields, then the present value of that asset has to decline.

Also, don't forget that retail is basically all in on this market. So trading long is now trading with the retail side. With no central bank support. I am sure we'll have a bounce back soon, but don't expect a runaway market higher anymore. This is the 9th inning of this 9 year bull market. Trade accordingly. There is some support at 2780, and below that stronger support at 2760. Resistance now at 2835-2840 on the upside.

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